Supply chain pros say the lean operating model may need to make a comeback.
Just-in-time supply chains took a lot of heat during the pandemic after empty shelves laid bare the pitfalls of ordering as little inventory as possible in the name of efficiency.
But, with retailers now struggling with inventory glut and overstocked warehouses, could the lean operating model be making a comeback?
Experts are mixed: While some believe that just-in-time has no place in the supply chains of the future, others say a modified version of the strategy will still be necessary to maintain resilience while keeping costs down.
Supply Chain Dive reached out to three experts in supply chain management to ask: Did the pandemic kill just-in-time? Here are their responses, which may be edited for length and clarity.
Lisa Anderon: CEO of LMA Consulting
Just-in-time is not dead; however, the days of taking the concept literally and ordering inventory to arrive ‘just in time’ is dead. The just-in-time concept has always accounted for common sense decisions. For example, if ordering strategic inventory from China, you should account for likely demand and supply volatility and stockpile inventory appropriately. With that said, most businesses were completely focused on efficiencies prior to the pandemic and took just-in-time literally, assuming the supply chain would continue to support their needs. They went through the motions of assessing risk, but did not adjust their inventory profiles and were left empty handed during the pandemic.
Executives have realized that the supply chain is a system of systems, and no one can control the end-to-end supply chain, let alone their link in the supply chain. Instead of living on hope, they are assessing supply chain risk, reevaluating their supply chain footprint, dual sourcing key products or materials and determining where to locate strategic capacity and inventory to support changing demand patterns. As a pending recession is looming, smart executives are tightening their control over inventory while still accounting for their risk, footprint and customer conditions. As companies reshore, nearshore, expand capacities and rollout advanced technologies, supply chains will reshape for the future.
If companies are following the literal just-in-time methodology, they will wind down during this reshaping process. It will not be for the faint of heart as it will require taking on risk, reconfiguring and expanding where it makes sense, and investing in inventory to support customer success. On the other hand, for those following the just-in-time concept, they will incorporate the these changing conditions and right-size their inventory to support profitable growth.
Abe Eshkenazi: CEO of the Association for Supply Chain Management
The just-in-time system worked so well in the past thanks to dependable and stable conditions. But the pandemic blew a fuse, revealing flaws to just-in-time. Just-in-time promotes efficiency and product quality, but sometimes at the expense of resilience, and therefore isn’t always equipped to manage the turbulence of global events, like COVID-19, weather disasters and the Russia-Ukraine conflict. That’s one of the reasons why we saw disorder and disruptions begin to take over supply chains in 2020 and why we’ve been working to catch up ever since.
Now, around 64% of companies are pivoting from just-in-time to just-in-case to circumvent liability. Just-in-case is a system which depends on extra stock and buffers for high-demand products to maintain business continuity. This is another outcome of lockdowns and the ensuing changes in consumers’ shopping behaviors.
While just-in-case has value, that’s not to say that companies should completely abandon just-in-time as inventory levels remain elevated. A modified version of just-in-time can be beneficial where companies only stockpile certain vulnerable items to avoid fallout from potential disruptions. Clearly consumers still have an expectation of high variety, rapid delivery and reasonable cost that defined just-in-time supply chains.
Overall, just-in-time improves processes, raises standards and increases the quality of goods, resulting in stronger relationships between companies and consumers. Therefore, when applied strategically, a flexible just-in-time system should promote the resiliency and agility needed to navigate shifts in supply demands. The pandemic taught us many lessons and moving forward we can expect companies to reconsider how they implement just-in-time.
Jason Miller: Associate professor of supply chain management at Michigan State University and interim chairperson for Eli Broad College of Business’ Department of Supply Chain Management
The rhetoric that the COVID-19 pandemic killed just-in-time doesn’t accurately capture the dynamics. What we are seeing is the decision to reevaluate safety inventory levels.
Safety inventories are a function of uncertainty of demand as well as uncertainty of supply (specifically uncertainty of lead time from suppliers for full order quantities). COVID-19 has exacerbated both forms of uncertainty, which results in companies holding more safety inventories to achieve the same target service levels. As we see supply chains normalize through 2023 (barring some other massive shock), we would expect companies to reduce their levels of safety inventory to correspond to the “new normal” levels of demand and supply uncertainty.
Another dynamic the COVID-19 pandemic brought about was chronic shortages encouraged customers to engage in “gaming” behaviors where they intentionally over-ordered from suppliers because they feared suppliers wouldn’t be able to fulfill all demand and, instead, would be forced to allocate products to customers based on the percentage of order quantity. For example, if I suspect my supplier will only fulfill 80% of demand and I expect to sell 400 units, I place an order for 500 units.
Beyond needing to reset safety inventories and gaming, forecasting also became far more difficult once the COVID-19 hit. Greater forecast inaccuracy, especially over-projecting demand growth, caused many retailers to over-order inventories, which caused a glut of inventory in some sectors.